Obama Must Take This Opportunity To Reframe The Economic Debate

Robert
Reich is one of the nation’s leading experts on work
and the economy, is Chancellor’s Professor of Public
Policy at the Goldman School of Public Policy at the
University of California at Berkeley. He has served in
three national administrations, most recently as
secretary of labor under President Bill Clinton.

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When the applause among Democrats and recriminations among
Republicans begin to quiet down — probably within the next few
days — the President will have to make some big decisions. The
biggest is on the economy.

His victory and the pending “fiscal cliff” give him an
opportunity to recast the economic debate. Our central
challenge, he should say, is not to reduce the budget
deficit. It’s to create more good jobs, grow the economy,
and widen the circle of prosperity.

The deficit is a problem only in proportion to the overall size
of the economy. If the economy grows faster than its current 2
percent annualized rate, the deficit shrinks in proportion. Tax
receipts grow, and the deficit becomes more manageable.

But if economic growth slows – as it will, if taxes are raised on
the middle class and if government spending is reduced when
unemployment is still high – the deficit becomes larger in
proportion. That’s the austerity trap Europe finds itself in. We
don’t want to go there.

This is why January’s so-called “fiscal cliff” — $600 billion in
automatic spending cuts and tax increases – is so dangerous. It’s
too much deficit reduction, too soon. Tax increases on the middle
class would reduce their spending just when the economy needs
that spending in order to keep growing, and cuts in government’s
own spending would make the problem worse.

If we go over the fiscal cliff, we’re in another recession. Don’t
just take my word for it. That’s also the view of the
Congressional Budget Office and most private economic
forecasters.

The way to ensure continued growth is to continue the President’s
payroll tax cut and extend the Bush tax cuts for income under
$250,000, and continue government spending.

The way to increase growth is to permanently exempt the first
$20,000 of income from the payroll tax and make up for lost
revenues by raising the ceiling on income subject to it (that
ceiling is now $110,100). And increase government spending —
especially on critical public investments like education, job
training, and infrastructure.

Any “grand bargain” on deficit reduction should contain a
starting trigger — and that trigger should be when the economy
can safely be assumed to be back on track. I’d make that trigger
6 percent unemployment and 3 percent economic growth for two
consecutive quarters, and make sure that trigger was in the
legislation.

The President needs to make it clear to the public that the only
way we can achieve a better economy is through a larger and more
buoyant middle class. If we continue lurching toward widening
inequality and ever more concentrated income and wealth at the
top, the vast middle class – as well as all those who aspire to
join it – won’t have the purchasing power to grow the economy and
create more jobs.

That’s why taxes must be increased on the wealthy, and the
proceeds used to reduce the deficit over the long term, extend
and enlarge the Earned Income Tax Credit (a wage subsidy for
lower-income workers), and invest in education.

The President’s victory doesn’t give him a clear mandate to
achieve any of this – the margin of victory was too small, and he
didn’t tell the American electorate explicitly that his priority
would be creating jobs and growing the middle class instead of
reducing the deficit.

But his victory gives him the attention of the nation and the
authority that comes with having won reelection. It therefore
gives him the opportunity to recast the economic debate. The
upcoming fiscal cliff makes it particularly urgent he do so
quickly.